Libya energy

Oil blockade continues to ravage economy

On March 2nd the Tripoli-based National Oil Corporation (NOC) announced that Libya's oil production had plummeted to around 120,000 barrels/day (b/d)—down from 1.14m b/d in December 2019, with financial losses to the NOC since mid-January surpassing US$2bn.

Analysis

Forces affiliated with the self-styled Libyan National Army (LNA) seized Libya's major eastern oil export terminals on January 17th, in an attempt to politically pressure and squeeze the UN-recognised Government of National Accord (GNA) of funds. It is in effect a blockade, preventing the shipment of oil supplies. Libya's rival eastern administration, which is supported by the LNA, claims that it does not benefit from oil income and cannot force tribesmen to lift the blockade, owing to it being a "popular decision". As a result, the Central Bank of Libya released data in February revealing that no oil revenue was received in January. This subsequently affects fiscal decision-making, GDP growth and the current-account balance. In addition, oil prices have plunged since the beginning of 2020 to about US$55/barrel, owing largely to decreased demand following the Chinese coronavirus outbreak.

Considering that both the GNA and the LNA are backed by various foreign powers, it appears that deeper international pressure is required to bring the oil blockade to an end. The chairman of the NOC, Mustafa Sanallah, met the Tunisian-based US ambassador to Libya, Richard Norland, on February 19th to discuss the economic and humanitarian impact of the oil blockade. Here Mr Sanallah stated that the "US ambassador and I agreed that the oil and gas sector must be allowed to operate for the benefit of all Libyans", with hydrocarbons exports representing the state's main source of revenue. Continuous depletion of vital revenue not only threatens to bring a financial crisis, but also affects government expenditure, with the central government unable to pay state employees.

In comparison, oil production remained relatively stable in 2019, despite persistent security threats. However, owing to the fact that LNA-affiliated forces control the majority of Libya's oilfields and refineries, such a scenario unfolding remained a possibility. This will, in turn, most probably keep investors away from Libya until the escalating violence is more vigorously addressed.

Impact on the forecast

We currently forecast that Libyan oil production in 2020 will average 600,000 b/d, on the basis that the oil blockade will continue until end-March, after which production will gradually improve. However, we will keep monitoring the situation and could revise this down in our next forecast.